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Jan 14: House to take up SCHIP (Children's Health Insurance) funding bill (the cost of which is offset by cigarette tax increases)

Jan 14 or 15: House to take up legislation placing conditions on the remaining $350 billion in TARP funds

Jan 20: Presidential Inauguration

Jan 21 or 22: Ways & Means Markup of stimulus bill (tentative)

Jan 22: Senate Finance Committee markup of stimulus bill (tentative)

Feb 2: President required to transmit the FY 2010 budget to Congress (however, this being a presidential transition year, it is likely that President Obama will transmit a "baseline budget" on February 2d followed by a "budget policy outline" later in the month)

Feb: Enactment of remaining FY 2009 appropriations

March 6: Funding for much of the Federal Government expires under the terms of the current continuing resolution (see article below)

March/April: Congressional action on a 5-year or 10-year Budget Resolution

May-September: Congressional action on the twelve FY 2010 Appropriations Bills and a Budget Reconciliation bill (if called for by the Budget Resolution)

Track 1: Economic Stimulus Legislation (Jan/Feb)

Last Thursday, January 8, 2009, President-Elect Obama delivered an address underscoring his aim to sign into law as soon as possible an American Recovery and Reinvestment Plan. Estimates put the cost of the bill at $775 billion over two years.

Timing.-- Last month, Democratic leaders had signaled an intention to have a measure ready for the new President's signature on January 20th. This month, with Members of Congress beginning to focus on the details, the goal has now shifted to a more realistic timetable of completing action before the President's Day recess. House Speaker Nancy Pelosi (D-CA) has said she will cancel Congress' President's Day recess (Feb 16-20) if an economic stimulus package isn't completed by then.

The following items are currently under consideration:

TAX CUTS:

"Making Work Pay" credits: Middle class payroll tax relief in the form of a $1000 tax cut ($500 for individuals). (Some Senate Democrats are pushing for additional infrastructure spending as a more effective means of stimulus.)

New-hire tax credits: A $3000 tax credit to corporations for each additional full-time employee hired. (Many congressional Democrats are opposing this, arguing it would be difficult to administer, easy to abuse, and unlikely to leverage private sector hiring.)

Extend a provision in last year's stimulus bill providing a $250,000 small business expensing limit.

Extend a provision in last year's stimulus bill that allows companies to apply net operating losses to the last 5 years-- generating instant refunds. (Current law allows NOL carrybacks for 2 years only. Some House Democrats are reluctant to include large banks that benefited from TARP).

$25 billion in renewable energy tax incentives including a 2-yr $8.6 billion extension of the production tax credit for renewable energy, and other measures to boost high ethanol fuel, plug-in vehicles, biodiesel production, and carbon-capture technology for coal-fired power plants.

Senator Chuck Schumer (D-NY) has said he will seek to add a college tuition tax credit.

Some House Democrats want to include a one-year AMT (Alternative Minimum Tax) patch (although this could push the total cost of the stimulus bill too high for some Members to support).

Other tax provisions could include expanding EITC (the Earned Income Tax Credit) to cover childless couples, and expanding the child tax credit to make it fully refundable (allowing people without any tax liability to receive the credit).

INVESTMENTS IN INFRASTRUCTURE, EDUCATION, HEALTH, AND ENERGY:

Repair and rebuild roads, bridges, and schools.(Some analysts have questioned whether there are sufficient "shovel ready" projects to give an immediate boost to the economy.)

Retrofit 75% of federal buildings and 2 million American homes for energy efficiency and economic stimulus.

Launch an effort to computerize all medical records within 5 years.

Enhance information technology in schools, community colleges and public universities.

Senator Carl Levin is pushing for a $1 billion investment in battery technology.

DIRECT AID TO STATES:

Increase federal Medicaid contributions to States (known as FMAP).

General revenue sharing assistance. (Senate GOP Leader McConnel and other Republicans are pushing for loans rather than grants so States will only ask for aid on high priority projects.)

OTHER:

Expand unemployment insurance benefits to cover part-time workers.

Expand food stamps.

Congress Daily reports that support is growing among House Democrats for expansion of the Trade Adjustment Assistance program that aids workers displaced by trade agreements.

Based on initial reactions from key members of Congress, the components of the proposed stimulus package could change considerably during congressional markups.

According to the Congressional Research Service, "economists generally agree that spending proposals are somewhat more stimulative than tax cuts."

According to Obama advisers, the middle class tax relief in the proposed stimulus package would be temporary, but permanent
tax cuts will be proposed in the
President-Elect's FY 2010 budget transmittal.

While stimulus
measures would be exempt from PAYGO rules as "emergency legislation," permanent cuts would run afoul of House and Senate PAYGO rules that
require new tax cuts and entitlement increases to be paid for.

The nation's governors discussed infrastructure projects recently
during a meeting with President-elect Obama. See the National Governors
Association white paper on economic recovery.

Track 2: Completion of FY 2009 Appropriations (Jan/Feb)

Last year's FY 2009 appropriations process was one of the worst on record in
terms of Congress passing the 12 regular appropriations bills. In fact, only one FY 2009 appropriations bill made it to the House Floor.

There were two reasons for the serious disruption of the regular appropriations process. First,
President Bush threatened to veto any appropriations bills that
exceeded his requests, and Democrats--as reflected in the Budget
Resolution--called for nearly $25 billion more than the President
requested. Second, House Republicans attempted to amend
appropriations bills with off-shore oil drilling amendments, strongly
opposed by many Democrats.

Consequently, in late September, Congress enacted a stopgap measure
to keep Federal programs operating. The stopgap measure was a hybrid of
an "omnibus" appropriations bill and a "continuing resolution":

it included detailed, full-year appropriations measures for the Departments of Defense, Homeland Security, and Veterans Affairs (based upon provisions informally negotiated by House and Senate Appropriators); and

it included stopgap funding through March 6, 2009 for all otherdepartments and agencies of government at FY 2008 levels.

The stopgap provision did not provide inflation
adjustments for the covered agencies. However, some specific programs
did receive increases: the low income home energy assistance program
(LIHEAP) received a $2.5 billion increase over '08; Pell Grants for
higher education received $2.5 billion over '08; and the WIC program
received $1 billion over '08 to assist with nutrition for new mothers
and their children.

In addition, the bill included $23 billion for disaster relief, and authorized $25 billion in loans to the auto industry to retool and develop more fuel efficient vehicles. (GM and Chrysler have received a separate bridge loan from the TARP to forestall bankruptcy.)

In the coming weeks, the Obama Transition Team will work with congressional appropriators on legislation to keep Federal programs operating beyond March 6, 2009, and at levels closer to Congress' FY 2009 Budget Resolution.

Track 3: FY 2010 Budget (March/April); Earmark Reform

While FY 2009 appropriations and a major economic stimulus plan are being expedited, President-elect Obama's new Administration will be simultaneously developing an FY 2010 Budget
for transmittal to Congress. The new Administration is likely to send a "baseline budget" to Congress on February 2d, followed by a "budget policy outline" later in the month.

The FY 2010 Budget transmittal will provide Congress with its first opportunity to view the Administration's long-term budget priorities.

From a strategic point of view, provisions that may be controversial are more likely to be considered in the FY 2010 budget process rather than in the January stimulus bill. The reason is that the FY 2010 congressional budget process can initiate a filibuster-proof"Budget Reconciliation" measure.

Posting requests online: Members will be required to
post their earmark requests on their websites at the time the request
is made (typically March and April);

Committee disclosure: Earmark lists will be made publicly available the same day as the Appropriations Subcommittees report their bills; and

Reducing earmarks: Earmarks will be held below 1% of discretionary spending ($10 billion) beginning in 2011.

Cautionary note: While we, of course, support more transparency with respect to earmarks, it is important to understand that earmarks are not the key factor in controlling the exploding public debt. Earmarks are less than 1% of the Federal budget. Moreover, earmarks generally relate to who makes spending decisions--Executive Branch or Congress--not how much is spent. (The amount of total spending is established at the front end of the budget process.)

The key factors in the growth of the public debt are the rapid and unsustainable growth of Medicare, Medicaid, and Social Security
(due to rising health care costs, retirement of the boomers, and
increasing longevity), as well as erosion of the revenue base.

Yesterday, President Bush--acting on behalf of President-elect Obama--informed Congress of the Treasury's intention to utilize the remaining $350 billion authorized by the TARP program.

Over the weekend, Obama aides began lobbying Congress to allow release of the second half of the Treasury's $700 billion financial system bailout fund, known as TARP (Troubled Assets Relief Program). Under the program's terms, after the President submits a detailed plan for use of the remaining $350 billion, Congress has 15 days to review the plan and can block the funds by adopting a joint resolution of disapproval.

There are widespread bipartisan concerns in Congress about the effectiveness of the first $350 billion.

Last Friday, Harvard Law School Professor Elizabeth Warren, who chairs a bipartisan TARP oversight panel said "we would urge Congress to consider the accountability and transparency questions, the question of whether money is going to be used for foreclosures, and the overall strategy issues as part of any additional requests made for more money." The panel's report questions whether Treasury knows what banks are doing with the TARP funds; expresses concern about inadequate transparency and asset valuation; finds that Treasury has yet to take any steps to use TARP funds to assist homeowners; and concludes that "Treasury does not have a coherent overall strategy and goals for use of the TARP funds." Congressional Oversight Panel Releases Second Report

This week House Financial Services Committee Chairman Barney Frank will
unveil legislation placing conditions on expenditure of the $350
billion remaining in the TARP fund (Troubled Assets Relief Program).
In particular, it would require that at least $40-$50 billion be spent for
housing foreclosure relief. The bill would also require detailed reporting by financial institutions receiving assistance from TARP.

The Washington Budget Report is maintaining an ongoing summary of actions taken by the Treasury, the Federal Reserve, FDIC, and other agencies to stabilize the financial, housing, and auto sectors and reestablish credit flows.

House Rules Changes Affecting the Budget Process

The House adopts new rules of procedure at the beginning of each Congress. The rules adopted for the new 111th Congress included two changes that have implications for the Budget Process.

1. Emergency Exemptions from PAYGO

In the 1990 Budget Enforcement Act, the Democratic Congress and President George H.W. Bush agreed to a new budget enforcement mechanism called pay-as-you-go or "PAYGO." The PAYGO law required that any new tax cuts or new entitlement spending be offset by tax increases or entitlement spending cuts to ensure a deficit neutral outcome. Failure to follow the PAYGO law would trigger automatic cuts in Medicare and other mandatory (entitlement) spending programs.

PAYGO's automatic trigger was an effective mechanism in the 1990s to deter deficit increases from new tax cuts or entitlement spending.

However, beginning with the Bush Administration in 2001, PAYGO was effectively repealed. Provisions were enacted that allowed massive tax cuts in 2001 to be enacted without offsets. The PAYGO law, itself, officially expired in 2002. The expiration of PAYGO paved the way for additional massive tax cuts in 2003 and enactment of the Medicare prescription drug program--both without any offsets.

When Democrats became the majority party in Congress in 2007, they sought to reestablish the PAYGO regime. However, the Bush Administration was adamantly opposed to reenactment of PAYGO, believing it would hinder extension of tax cuts due to expire in 2010.

With the President threatening to veto a new PAYGO statute, the House and Senate instead adopted PAYGO Rules that allow any Member of Congress to raise a point of order (parliamentary objection) against any new tax cuts or entitlement spending that were not offset over a 5-year period and over a 10-year period.

When the House reconvened earlier this month for the 111th Congress, they adopted a modification to the House PAYGO rule that allows for "emergency legislation" to be exempt from the requirement. Under the modification, "provisions of legislation may receive an emergency designation if such provisions are necessary to respond to an act of war, an act of terrorism, a natural disaster, or a period of sustained law economic growth."

The percentage of total Medicare outlays covered by payroll taxes, premiums and other dedicated funding sources is shrinking, and the amount of general revenues required to keep the program afloat is rapidly increasing.

As a consequence of this trend, the 2003 Medicare prescription drug legislation required the Trustees of the Medicare Trust Funds to report each year on the amount of general revenues required to finance Medicare; and if the percentage of general revenues is projected to exceed 45% of total Medicare outlays for two consecutive years, the Trustees are directed to issue a "medicare funding warning." In response, the President is required to submit to Congress proposed legislation with reforms that would eliminate the "overage."

The House is then required to consider the legislation on an expedited basis, although there is no requirement that the Senate take up the legislation.

Similar to a resolution adopted last year (H.Res. 1368), the House rules change eliminates the requirement that the House consider the legislation on an expedited basis, although the Trustees will still be required to issue a "Medicare funding warning" and the Administration will still be required to transmit legislation to Congress.